Treasury Wants Banks to Become Quasi-Police

TREASURY WANTS BANKS TO BECOME QUASI-POLICE

New FinCEN Rules Call for “Information Exchange”

For decades, federal regulators have told banks that they are on the front lines in the fight against money laundering, terrorist financing and tax fraud. Now the Treasury Department wants them to be even more aggressive in identifying potential illegal activity.

On June 12, the Treasury Department and its Financial Crimes Enforcement Network (FinCEN) announced new guidance as follow-up to a June 5 announcement, that is designed to expand the ability of financial institutions to exchange information with one another about suspected fraud, to be carried out in real time. The stated goal is to stop fraudulent schemes before the money disappears instead of investigating the acts months (or years) later.

The new guidance does not create an entirely new legal authority. Rather, it expands and clarifies the use of information-sharing provisions already found in section 314(b) of the USA PATRIOT Act. This is a voluntary information-sharing program that eligible institutions must opt into.

The practical effect, however, could be significant because banks are now expressly encouraged to exchange a broader range of information with one another when they suspect criminal activity. That represents an important change in emphasis.

For years, banks primarily viewed information sharing through the lens of money laundering and terrorism investigations. Treasury is now telling financial institutions that ordinary fraud schemes — including payroll fraud, identity theft, labor exploitation, wire fraud, and organized financial crime — also fall squarely within the information-sharing framework. It seems to me that Treasury’s new role for banks grows from that of a mere information warehouse where the IRS can access all manner of financial records, to that of an on-guard watchdog that reports any potential “fraudulent” activity; a sort of quasi-police force.

The Meaning of “Real-Time Information Exchange”

The idea is for banks and financial institutions to share information with one another on a day-to-day basis. For example, instead of one bank discovering suspicious activity and quietly filing a report with the government while other banks remain unaware of the same scheme, participating institutions are authorized to communicate directly with one another while the potential fraud is still unfolding.

The information exchange is to include transaction patterns, cyber information such as IP addresses, surveillance images, account activity, and other data that help identify whether multiple institutions are seeing the same potentially criminal operation. Under the disclosure guidance, institutions can compare notes immediately instead of operating in isolation.

The objective is to stop fraudulent transfers before criminals have an opportunity to move funds through multiple accounts and beyond the reach of law enforcement.

With Whom Is the Information Shared?

The rest of this article is found in the July Issue of Pilla talks Taxes. 

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Check back as Dan is planning a podcast on this topic!